Are you a resident in Italy and what taxes apply to you?
By Gareth Horsfall
This article is published on: 18th September 2014
Tax List
Not a week goes by these days, where I am not contacted by someone who has a question about their residency in Italy, and what that means for them fiscally. Either by people who are about to move to Italy or others who have already been living here for some time and want to become ‘in regola’.
The conversation then naturally flows into the minutiae of exactly what are the taxes that need to be paid in Italy.
So, following on from last week’s E-zine about residency and how it is actually defined, I thought I would write and explain those pesky taxes that apply to expats who have income being paid and/or assets held in other countries. I will repeat this towards the end of the year when some of you may be finalising your tax positions for 2014, but it may act as a good guide for those who are thinking about, or in the process of, doing something about their Italian tax returns for 2014.
Where to start?
Well, firstly I start by confirming that, as a resident in Italy, you are subject to taxation on your worldwide assets and income (with some exceptions). That means that if you are a resident in Italy (see my blog post RESIDENT EVIL for details of residency), then you are required to declare your assets and income, wherever they might be located or generated in the world.
TAX ON INCOME
If you are in receipt of a pension income, for example, and it is being paid from a private pension provider overseas or a state pension, then that income has to be declared on your Italian tax return (nb. different rules apply to Government service pensions, where tax is generally deducted at source in the country of origin and there is no further requirement to report the income in Italy). If tax is deducted at source in the country of origin, the income must still be declared again in Italy. A tax credit will be given for the amount of tax paid in the country of origin (assuming that country has a double taxation agreement with Italy), but any difference between the tax rates in the country of origin and Italy will have to be paid.
It is a similar picture for income, generated from employment. This is a slightly more complicated issue that depends on many factors and, therefore, I shall not dwell on it here. If you have any questions in this area you can contact me on the details at the bottom of this page.
INVESTMENT INCOME AND CAPITAL GAINS
This is one area where Italy excels above other countries, in that its system of calculation is very simple. As of 1st July 2014, interest from savings, income from investments in the form of dividends and other income payments are taxed at a flat 26%. Capital gains tax is the same rate of 26%.
** Interest from Italian Government Bonds and Government Bonds from ‘white list’ countries is still taxed at 12.5% rather than 26%, as detailed above. This is another quirk of Italian tax law as this means it is more convenient, from a tax position, to invest in Government Bonds in Pakistan or Kazakhstan, than it is to buy corporate Bonds from Italian corporate giants ENI or Unicredit. **
PROPERTY OVERSEAS
Property which is located overseas is taxed in 2 ways. Firstly, there is the tax on the income and, secondly, a tax on the value of the property itself.
- Income from property overseas.
Unlike rental property located in Italy, which is taxed at the rate of approx 23% depending on what kind of rental you operate, overseas income from property is added to your other income for the year and taxed at your highest rate of income tax.
There is one advantage to this, in that tax in the country of origin has to be applied to the income in the first instance. Therefore, the net income (after expenses) in the country of origin is added to your other income in Italy for the year. This can be quite useful if the property/ies are investment properties, the expenses are high, the country of origin allows multiple deductions and the net income position is low. However, as I have written before, if you are reliant on the income to live on, then a high net income position (before declaration in Italy) can result in a much lower net amount (after Italian tax) depending on the amount of other income you receive each year. Once your total income for the year moves above €28,000 you enter into the punishing 38% tax bracket in Italy.
This can prove to be a tax INEFFICIENT income-stream for those hoping to live in Italy by relying on income from property overseas.
- The other tax is on the value of the property itself, which is 0.76% of the value.
However, value must be defined in this instance. For EU based properties, the value is the Italian cadastral equivalent. In the UK (the area I am most familiar with), that would be the council tax value NOT the market value. You will find that the market value will, in most cases, be more than the cadastral equivalent value.
In properties located outside the EU, the value for tax purposes is defined as the market value of the property ONLY where evidence cannot be provided of the purchase value of the property, in which case this would be used instead.
TAXES ON ASSETS
It would not be right that other assets escaped Scot free! (Talking of Scots, it will be interesting to see how the markets react tomorrow to the possible Independence vote of Scotland. I will be watching and reporting on events depending on the outcome)
BANK ACCOUNTS AND DEPOSITS
A very simple to understand and acceptable €34.20 per annum is applied to each bank account or deposit account that you own overseas with an ‘average’ balance of €10,000 in it, each calendar year. This includes fixed deposits, current accounts, short term cash deposits, CD’s etc. The charge is the equivalent of the ‘bollo’ which is applied to all Italian bank accounts each year.
Lastly, we have the charge on other foreign-owned assets (IVAFE). This covers shares, bonds, funds, portfolio assets or most other types of assets that you may hold. The tax on these is 0.2% per annum, based on the valuation as of 31st December.
This guide is only meant to be a broad outline of the taxes that affect most expats. It is not a full tax list and does not take into account personal circusmstances. It is intended to be a guideline to help you make the right decisions. My experience over the last 4 years has been, in most cases, that expats will end up paying more by being resident in Italy (which most seem to accept as OK) but, there are often a number of financial planning opportunities, to generate capital in more effective ways, that people are NOT taking advantage of.
If we haven’t discussed these already or if you would like an initial chat to discover whether any of those opportunities are open to you then you can contact me on the email address below or I can be reached on cell: 333 6492356. There are no fees for consultations.
How to protect yourself in uncertain times
By Spectrum IFA
This article is published on: 15th August 2014
Wealthy individuals have a lot more in common than just their wealth. Ambition, skill, patience, consistency and a strategic game plan are all vital to ensure success. Keeping an eye on the end goal and never giving up have been key to reaching greater heights.
Only a minority of the population become extremely rich, as the likes of Warren Buffet, Richard Branson or Paul Getty, but this does not mean that we can’t enjoy a comfortable lifestyle with luxuries and freedom.
World stock market performances over the last 60 years reveal that the enduring trend is up and it is evident that any sharp downward movements often coincided with world calamities. Even with the peaks and valleys, stock market performance over time still yields inflation-beating returns for those who remain loyal.
Despite this, investors are concerned about the fluctuating Gold price and negative impact of the mining and metal strikes in South Africa and the developing Russian/Ukraine crisis which is already a cause for alarm – Russia is now talking of disallowing air travel over its skies to the East thus hampering tourism, the lifeblood for many of the Asian Tiger’s economies.
Hearing the words ‘hang in there’ is not enough reassurance for those trying to save for retirement or financial independence. This in turn affects investors who feel the pinch whether it be through investment of stocks directly through their own portfolio comprising retirement annuities, pension plans, QROPS, unit trusts or any other long term investment products which are exposed to the share market.
The critical questions is …
“How you manage your income and investments to shield against market volatility?”
Well, there are basically two main strategies that need to be developed in order to provide an effective buffer against economic turmoil.
The first is effective management of income and the second is a well-structured investment strategy.
Effective Money Management
It is little wonder that rising interest rates cause such widespread concern when so many people and businesses are exposed to excessive debt. If you take an average small- to medium-size business owner, they will probably have an overdraft, two car leases, a home mortgage and perhaps credit card debt. In anyone’s book, this results in a big chunk of money to repay before the school fees have been paid or the life policy has been covered.
The first step to minimising the effects in uncertain economic times is to reduce debt. If you don’t have excessive debt, the impact of rising interest rates on your pocket will be negligible and it’s worth bearing in mind that if you have cash reserves, the higher rate will benefit you greatly.
Well-structured investment strategy
The consensus amongst investment experts is to advise individuals to construct an investment portfolio in order to take advantage of long term trends. If the long term structure of an investment portfolio is healthy, short term storms can be weathered.
The first defence against any volatility in the markets is diversification. What this means, is that investors need to ensure that their investment portfolio is structured in such a way that they have investments in different asset classes such as cash, bonds, property and equities.
Uncertainty and volatility are intrinsic to investment markets. For this reason, investment should be viewed as simply a means to having enough money to live the lifestyle that you would like to live.
An investment portfolio should remain unchanged during times of volatility, unless the factors upon which the construction process was based have changed.
Investors should not change a long term game plan based on short term volatility. Attempting to time the market based on short term movements only increases portfolio risk.
The best way to protect yourself from market volatility is to first reduce your risk, which can be achieved by reducing debt. By doing this, you will have a lot less to worry about if inflation forces interest rates up.
The next step is to ensure that your investment strategy has a long term view and a financial planner will be your best resource when setting up a long term portfolio.
If you realise from the above the importance of seeking proper professional financial advice involving risk classification and correct diversification, why not give me a call in order to facilitate a meeting where we can do this.
Precious metals and gold
By Spectrum IFA
This article is published on: 30th July 2014
Which of these has more value? Is there something better?
 |
 |
When it comes to hedging (protecting) against dollar debasement, few things have performed as well as gold. Having gold or unit trust gold funds could be said to be “preparing for the worst.”
Following the fairly recent global financial crisis, governments have adopted expansionary monetary policies by cutting interest rates and increasing the amount of money in circulation to keep their banks and indebted borrowers afloat. Even though the historical case for gold is strong and the price goes up, the raw supply and demand case for platinum and palladium might be even stronger.
Russia and South Africa currently hold 80% of the world’s platinum and palladium reserves and both are struggling to maintain output. In fact, global supply is becoming increasingly less as production declines in these two politically volatile countries. Strikes in South Africa have resulted in the loss of 550,000 ounces (14,174,761 grams) worth of production in the first quarter of this year. And the tensions along the Ukraine border threaten to trigger huge disruption in markets in Russia.
This instability in South Africa and Russia all but ensures that the platinum and palladium markets will see yet another supply deficit in 2014.
Regardless, demand continues to increase and is unlikely to come down soon. Primarily, these metals are used in catalytic converters, the mechanism in your car’s engine that helps reduce noxious gas output and helps to keep the air cleaner. As more and more cars hit the roads – particularly in developing nations – the demand for cleaner air looks set only to rise.
Do you have gold shares in your investment portfolio? Or Uranium or Platinum? Now is the time to look at exactly what assets make up your portfolio. After all, I am sure you want to cover all bases.
———————————————————————————————-
“The best time to invest is when you have money.
This is because history suggests it is not timing which matters, but time”
Sir John Templeton
Are you a retired expat in Italy or thinking of retiring to Italy?
By Spectrum IFA
This article is published on: 29th July 2014
If your answer is “yes”, Then this information is important to revisit or think about
Expat guide to Money Management
Part 1: Your money and the cost of living
Maybe you have already relocated to Italy, or are seriously considering doing so. There are many factors which come into play. And nothing is more striking than how the change in the cost of living may impact upon you.
Add to this, changes in other areas – for example climate, salary and social life – all of these will have an impact on a successful stay/move – but the most vital one is to make sure you have control over your living expenses.
Adjusting to how much things cost relative to what you are used to is a key part of expat life and forewarned is forearmed!. The World Bank conducted an exhaustive survey and in its report highlighted the fact that food, housing, energy and healthcare costs continue to account for as much as 89% of annual spending, regardless of your location. It’s therefore vital that your day-to-day financial planning takes this into account, regardless of whether you’re employed, self-employed, looking for work in your new location or even retired or retiring.
I have experienced this myself since moving to Italy, especially insofar as the delicious Italian cuisine is concerned. Fortunately my wife has tracked down a tailor to make my trousers larger, but now I have the added expense of having to employ a personal trainer, something I never thought about in my prior planning on moving to Italy!!
Calculate what you’ll need in advance
If you are planning a move, then you need to know how much money you will need in order to have an equivalent lifestyle to the one you currently have. Also, you will need to gauge comparisons in the housing market as to property prices and/or rentals depending on your “mode of habitat”.
A personal tip: You can do this on the internet by looking at housing agencies and rental companies but you will find, 99 times out of a 100, accommodation at much lower prices if you just come to Italy for that purpose. Our quest via the web was frustrating as most agents have virtually the same properties on their books. But by coming to Italy ourselves (Lucca) we visited a few smaller operations and came away with exactly what we wanted at a rental 30% less than we found on the internet.
And do not forget other “miscellaneous” expenses such as buying a car, removal costs and very high motor car insurance premiums which need to be paid up front – only 6 or 12 months in advance – no monthly payments – and that premiums will reduce yearly as your stay in Italy lengthens.
Consider medical insurance
Healthcare is “non-negotiable” even if you qualify for the Italian state medical protection. As was pointed out in the information regarding finding accommodation on the web, rates quoted are generally quite expensive, but by speaking to a “local” agent/broker (usually with the aid of a translator) much lower rates can be obtained. This also happened in our case.
Think of the small additions
Other additional living costs may include employing a driver or domestic staff where relevant, and joining certain clubs to participate in expat social or business life. And then there is the cost of maintaining assets based in your native country. If your house is let out, for example, management fees will need to be paid to a letting agent.
Book a financial review
Consult a wealth consultant/adviser who can talk you through the opportunities available as an expat and find out why you should book a financial planning review
As safe as money in the bank
By Spectrum IFA
This article is published on: 24th July 2014
More than a fifth of UK citizens think that the best long-term investment is putting their money in the bank. This is the rather discouraging result of a July survey by Bankrate.
One of its questions was, “For money you wouldn’t need for more than 5 years, which one of the following do you think would be the best way to invest your money?”
- 26% – cash
- 23% – real estate
- 16% – precious metals
- 14% – stock market
- 8% – bonds
That thumping sound you hear is me banging my head on my desk!!
I assume those who opted for cash did so because keeping money in the bank seemed to be the safest choice.
However, for long-term investing, that safety is an illusion. The best and safest place to put your nest egg for the future is not in the bank, but in a well-diversified portfolio with a variety of asset classes. And here’s why:
Savings accounts and CDs are safe places to store relatively small amounts of cash that you expect to need within the next few months. The funds are protected by insurance. You know exactly where your money is, and you can get your hands on it anytime you want.
This short-term safety does not make the bank a good place for the money you will need for retirement or for other needs five years or so into the future. It may seem like safe investing because the amount in your account never goes down. You’re always earning interest. Yet, over time, that interest isn’t enough to keep pace with inflation.
The purchasing power of your money decreases, which means you’re actually losing money. It just doesn’t feel like a loss because you don’t see the loss in its value.
In contrast, the stock market fluctuates. The media constantly reports that it is “up” or “down” as if those day-to-day numbers actually matter. This fosters a perception that investing in the stock market is risky.
Combine that with the scarcity of education about finances and economics, and it’s no wonder that so many people are actually afraid of the stock market and view investing almost as a form of gambling.
Wise long-term investing in the stock market is anything but gambling. Instead of trying to buy and sell a few stocks as their prices go up and down, wise investors neutralize the impact of market fluctuations by owning a vast assortment of assets.
This is accomplished with a two-part strategy.
The first is to invest in mutual funds rather than individual stocks.
The second component is asset class diversification. The mutual funds you invest in will comprise all of the asset classes in proportions or percentages falling in line with your appetite for risk (conservative, moderately conservative, moderate/balanced, fairly aggressive, high risk). Ideally, a diversified portfolio should include at least four asset classes.
By holding small amounts of a great many different companies and asset classes, you spread your risk so broadly that the inevitable fluctuations are small ripples rather than steep gains or losses. As some types of investments decline in value, other types will be gaining value. Over the long term, the entire portfolio grows.
In the long term, investing in this way is usually safer than money in the bank.
Perhaps you are holding too much capital in bank accounts and are beginning to realize you will see no “real growth” thereon. Why not give me a call to arrange a mutually convenient time for us to get together to investigate better ways of having your money grow for you? It does no harm in checking and, who knows, you may come away pleasantly surprised.
“With money in your pocket, you are wise, and you are handsome, and you sing well too.”
Jewish Proverb
An Inflationary Tale
By Spectrum IFA
This article is published on: 20th July 2014
An Inflationary Tale
Inflation is a complicated concept. It’s not easy to understand but if ignored, your money will slowly and stealthily reduce. As a teenager growing up in the 70’s I would hear the newscasters talk about inflation and price controls yet could never tell if it was a good or bad thing. Interest rates were going up as were house prices and income. This had to be a good thing I thought but little did I know!. What I learned later in life as I studied inflation is that, like most things, inflation is a double-edged sword. There are winners and there are losers. It is good for some and bad for others. As you read this tale focus on the two main concepts about inflation. Learn what it is and what it means to an investment portfolio.
What Does The Word Inflation Actually Mean?
Type the word “inflation” into a search engine on your computer and you will probably get information informing you that inflation is “A rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects an erosion of the buying power of your money – a loss of real value. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.” If you are like me and read the above definition you are thinking blah, blah, blah, blah, blah. So since the objective of this Newsletter is to keep things simple, let’s just translate this to what it means to you as an investor.
I like to think of inflation in terms of what $100 can buy in the future if I don’t invest it today. Let’s say, for example, if I make 0% rate of return on my $100 bill because I either put it under my mattress or buried it in the ground or kept it in a safety deposit box and then a few years later I want to know what it can buy. This is what inflation means to the investor or consumer. What that $100 can buy is called purchasing power and purchasing power is directly proportional to the rate of inflation. The following table shows what $100 un-invested can buy at different inflation rates over different time periods. I call it my “Mattress Investing table” because it teaches us that you can’t put money under your mattress unless you want to guarantee that you will slowly erode the value of your money.
Mattress Investing
(The Loss of Purchasing Power Associated with Not Investing $100.00)
| Inflation Rate | 5 years | 10 years | 15 years | 20 years | 25 years | 30 years |
| 0% | $100 | $100 | $100 | $100 | $100 | $100 |
| 1% | $95.10 | $90.44 | $86.01 | $81.79 | $77.78 | $73.97 |
| 2% | $90.39 | $81.71 | $73.86 | $66.76 | $60.35 | $54.55 |
| 3% | $85.87 | $73.74 | $63.33 | $54.38 | $46.70 | $40.10 |
| 4% | $81.54 | $66.48 | $54.21 | $44.20 | $36.04 | $29.39 |
| 5% | $77.38 | $59.87 | $46.33 | $35.85 | $27.74 | $21.46 |
| 6% | $73.39 | $53.86 | $39.53 | $29.01 | $21.29 | $15.63 |
| 7% | $69.57 | $48.40 | $33.67 | $23.42 | $16.30 | $11.34 |
| 8% | $65.91 | $43.44 | $28.63 | $18.87 | $12.44 | $8.20 |
| 9% | $62.40 | $38.94 | $24.30 | $15.16 | $9.46 | $5.91 |
| 10% | $59.05 | $34.87 | $20.59 | $12.16 | $7.18 | $4.24 |
How should an investor read this table?
Investors should understand that if they keep money in a mattress for 15 years and the inflation rate over 15 years is 5% per year their $100 can only buy $46.33 worth of “Stuff” 15 years later. If inflation were to average 7% for 30 years their $100 could only buy $11.34 worth of “Stuff.” I know it’s silly to think that anyone would keep their money in a mattress but the reason I use the table above is because it illustrates the important concept about inflation which is loss of purchasing power. Inflation in and of itself is meaningless. What matters to people is what inflation causes which is the loss of purchasing power. As an example, when I get in my car to drive I have a rudimentary notion of how the engine functions. People that know me know I’m not mechanically inclined. I do however know how the steering wheel works. To an investor, inflation is the engine while purchasing power is the steering wheel. You can be completely oblivious to how an engine works and still be an excellent driver. So, if you are so inclined you can spend a disproportionate amount of time studying how the engine works or the nuances of inflation or you can learn how to drive and invest your money to combat the loss of purchasing power. How to invest your money to combat inflation is discussed in A Preservation Tale. I’ll give you a little hint—I am not a Gold Bug but if you put a $100 gold coin under your mattress instead of a $100 bill you have a much better chance of preserving purchasing power during inflationary times.
So once again, how should an investor read the Mattress Investing table?
Let’s focus on the 3% inflation rate since that has been a good approximation for so many decades. What this table shows is that if the inflation rate is 3% and you keep your $100 under your mattress, in 5 years it will only buy $85.87 worth of “Stuff.” I like to use the technical term “Stuff” to describe purchasing power!. To investors, the intended use of a $100 bill is to be able to buy “Stuff.” In and of itself the $100 bill is worthless. Its only value is the amount of “Stuff” it can buy. In this case it can only buy $85.87 worth of “Stuff” so the Mattress Investor has lost $14.13 of “Stuff” by keeping it in his mattress or not investing it. When you hear the term Loss of Purchasing Power it means “Stuff” you can’t buy!.
This leads directly to what I consider the minimum objective for investors and one of my maxims.
The purpose of investing should be to at a minimum maintain your purchasing power. I believe you should invest so that you don’t lose your “Stuff.”
Learn
So what can we learn from this tale that puts money in our pocket? Who wins and who loses from inflation? By now it should be clear that at any inflation rate greater than 0% you must make more than 0% on your money in order to maintain purchasing power. Yet when guaranteed interest rates are not accommodative, like they are today and have often been in the past, the investor must invest in non-guaranteed investments to maintain purchasing power. For investors that have read tales such as this one this presents a quandary. They can intelligently ask themselves, if I want a guarantee and guaranteed rates are so low that I can’t preserve purchasing power then I must accept a loss of purchasing power. However, if I want an opportunity to maintain purchasing power I must assume risk. This is the never-ending portfolio management question that is forever on every investor’s mind and will be at every stage of their life. While most investors answer this question by forgoing guaranteed returns in order to not just maintain purchasing power but to potentially increase purchasing power, others do not. There are investors that choose to avoid risk at all cost and are knowingly watching their purchasing power slowly erode.
Unfortunately, the sad circumstance for most risk-averse investors is that they behave as they do out of ignorance or fear and not based on knowledge. Many are willing to invest their money in bank CDs, money market funds and government bonds at below required levels just to keep it guaranteed. The only guarantee they’re getting during most periods is the guarantee of a loss in purchasing power. When and if there is increased inflation these are the people that will also suffer the most.
Warren Buffet
Lastly, I have included a paragraph from a 1977 article written by Warren Buffett for Fortune Magazine on inflation. Inflation was a big deal back then though we tend to dismiss it today since it’s been so low for so long. But I thought the paragraph would be appropriate since it is easy-to-understand writing and he has a unique way of thinking about inflation as a tax. If you think of it the same way you will quickly understand that inflation is a consumer of your capital. We as a society take to the streets if there is so much as a hint of our elected officials raising our taxes. Yet we have no problem when we willingly or out of ignorance tax ourselves by investing in below inflation rate guaranteed investments. The following is taken straight from the article.
“What widows don’t notice”
By Warren Buffet
The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. Either way, she is “taxed” in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 percent income tax, but doesn’t seem to notice that 6 percent inflation is the economic equivalent.
If you are concerned that your money is not achieving returns equal to or higher than the inflation rate or wish to review your portfolio so as to make sure it is geared to do so, then please do not hesitate to give me a call.
How to Invest – Basic Investing Strategies
By Spectrum IFA
This article is published on: 19th July 2014
Have you applied these when making an investment?
Recently, while talking to an expat who has been living in Barga in Tuscany for many years, he confided in me that he thought he could invest without advice from other professional quarters. However, after seeing some of his investments post no real returns (ie the net return after inflation is factored in), he was in a quandary as he felt he would “lose face” by speaking to a qualified independent financial adviser. And he also added that he had friends living close by who had shared the same experience.
Learning how to invest your money is one of the most important lessons in life. You don’t need to be college educated to start investing. In fact, you don’t even need to be a high school graduate. You just need to have a basic understanding of business and have the confidence to make a plan — consider it a business plan for your life. You can do it.
Why investing can be scary
For many of us, money and investments weren’t discussed at home. These subjects may even be taboo within certain households — quite possibly, in households that don’t have much money or investments.
If your parents or loved-ones were not financially independent, they probably did not give you good financial advice (despite their best intentions). And even if your family is/was well-off, there’s no guarantee that their financial advice makes or made sense to you. Plenty of parents encouraged their kids to buy a house during the peak of the housing bubble, because in their lifetimes, housing prices only ever went up.
The goal of investing
Of course, everyone has different financial goals — and the more you learn, the more confident you’ll be in determining your own path. But here’s a basic financial goal to strive toward:
Over decades of hard work, most people who are about to retire or those who have already retired, would like to make more money than they spend and then invest the difference. By the time they retire, they would like their investments to throw off enough cash — through dividends or interest – so that they can live on this income without having to sell any investments.
Notice the first part of this goal is about hard work. If you’re hoping to take a little bit of money and gamble it into a fortune in the stock market, you can stop reading now, this article isn’t written for you. But if you have worked for a few decades, and want to make sure that you don’t have to work until life’s end, you’ll need to spend less than you make and invest the difference.
Also, you’ll notice that this goal doesn’t recommend selling your investments. Rich people don’t sell-off their assets for spending money — if they did they wouldn’t be rich for long. They stay rich because their assets provide enough cash flow to support their lifestyle. And these cash-producing assets, through careful estate planning, can be passed down from generation to generation.
Enjoying your twilight years by living off your investment income and having something left over for your loved ones or for a charitable organization is something that all investors should aspire to. It may not be possible for everyone, but it’s the right attitude.
What to invest in?
Before you even start to look at this area, it is absolutely imperative that a “proper” financial risk analysis of yourself is carried out. And this does not take the form of much-used generalised risk questionnaires (that would be like you or your wife doing a compatibility quiz in a woman’s magazine!!) No, the emphasis is on the words “proper risk analysis”
Once this has been done you move on to the most important factor in investment planning.
Diversification (or, Spreading the Risk)
Many, many investors are under the impression that if they have, say, a term deposit at bank/institution A, another at B, and a third at C, they are diversifying. They could not be more wrong.
When investing one looks at doing so across what is commonly referred to as Asset Classes. These comprise Cash (very Conservative Risk ie term deposit), Bonds (Moderate Risk), Equities (high risk) and Commercial Property (Moderately Aggressive Risk). Then, taking one’s appetite for risk (from the Risk Profiler), one invests across the Asset Classes accordingly.
The most common investments are mutual funds (unit trusts), insurance investments, bonds and the stock market. This article is not aimed at those with the time, experience, acumen and who can afford losses by direct share purchases.
Unit trusts/Mutual funds can own shares or bonds and with some commercial property exposure on your behalf.
Know the difference between saving and investing
Your investments and your savings are very different things. What if the stock market crashes? If you do not have a cash savings account to cover for emergencies (usually about six months’ income), you would probably have to sell your investments at the worst possible time. Don’t fall into this trap.
Being a successful investor requires money, patience and, just as importantly, confidence. Having confidence to make and stand-by your financial decisions requires education. Never stop learning.
When last did you do a “proper risk” analyser?
What applied five years ago is not going to necessarily be the same today. We are getting older and as the years go by, more often than not we tend to become more conservative. Hence the need to do a refresher where risk is concerned and then use this to analyse your investments in order to ensure the two correspond accordingly. If not, you actually run the danger of investing by default/error which could have a material impact on your life in the not-too-distant future.
If you realise from the above the importance of risk classification and correct diversification, just as you visit your doctor (or should) for an annual check-up, why not give me a call in order to facilitate a meeting where we can ascertain things. As the saying goes “you owe it to yourself!!
‘Risk’ (with an Italian flavour)
“If no one ever took risks, Michelangelo would have painted the Sistine floor”
Neil Simon, Playwright
Organize and simplify your financial portfolio
By Spectrum IFA
This article is published on: 9th July 2014
SIMPLICITY: freedom from complexity, intricacy, or division into parts: an organism of great simplicity.
In the course of my travels working alongside expat communities, one of the most frequent complaints raised by retirees is how complicated, tiresome and difficult it is to keep tabs on their financial affairs, primarily because they seem to have a host of different people advising them on a number of issues. So rather than enjoying their well-earned retirement, a lot of people seem to devote an excessive amount of time managing their financial affairs whilst trying to keep up to date with changes in the markets and changes in legislation etc.
This was confirmed by a recent survey of investors where 55 percent responded with the statement, “I am trying very hard to simplify my life”. This was up from 48 percent in the previous year. It seems that most people want simplicity in their lives but the truth is that many just don’t know how to go about it. We live in a world of i-phones, i-pads, e-statements and social media – we are constantly online and constantly contactable and so it is difficult to truly switch off.
One of my services is to help clients simplify their financial lives, eliminate clutter, organise accounts and streamline how they manage their money. This is where I can truly add value.
I help my clients to be as efficient as possible with their day-to-day money management by showing them how to make the best use of banking facilities in Italy (and save money in the process), showing them how to save money by paying bills online, using currency exchange services, looking at how to make the most of the tax credits in Italy, possibly moving UK pensions to other jurisdictions, wills, and managing investments more effectively.
By consolidating everything, you can reduce the levels of incoming mail and paperwork, avoid certain fees and also ensure that assets are properly diversified.
Example
In the course of a recent discussion with a prospective client I asked how their portfolio was being managed. He asked me to wait until he retrieved this information and, finally, some 10 minutes later produced approximately eight files each detailing different investments with a variety of companies.
On enquiring as to how each was performing and what their latest values were, he could not tell me, saying we’d have to obtain new statements and that he was “sick and tired of receiving so much investment correspondence, be it in the form of his own portfolio or marketing advice material that he seldom bothered to read through and normally threw them in the bin. At my suggestion we agreed to make another appointment and sit down, ring the various product providers and obtain up-to-date statements. Once this information was received we sat down and reviewed those elements that were performing well, those that were not so good and discussed what could be done to improve his overall situation. I recommended that rather than employing a financial planner, like myself, to manage the day to day investment management decisions, that based on the amount of money that he had invested, he should employ the services of a Private Client asset manager. In this way they could deal with the day to day investment matters and we could concentrate on how to minimise his cross border tax issues, reduce paperwork, and find ways to improve his overall financial position. This freed up time for him to concentrate on his other interests.
One Final Point
In this man’s situation he was clearly eligible for more sophisticated financial management than he had previously been used to, but was not aware he could access these types of services. Our job is to ensure all elements of your financial affairs are well maintained and that you get the best, based on your situation. By consolidating and streamlining financial affairs you have a real opportunity to help yourself manage the difficulties of cross border tax and financial issues that face expats living in Italy.
If you are over awed by the complexities of the Italian tax system or are concerned that you are not making the best use of tax breaks in Italy, or if you merely want your financial life to be simpler then you can contact The Spectrum IFA Group
Pilot Loss of License and Loss of Training Expenses Insurance
By Chris Burke
This article is published on: 26th June 2014
Aircrew undergo many years of hard work at substantial expense to attain their aviation license. However, a commercial pilot’s career and income are always at risk should they suffer serious injury or deterioration in health.
Pilots Loss of License Insurance provides financial support should your aviation career end abruptly; it provides stability while you retrain for a new career. Policies are available on an individual basis should your employer not provide it; similarly members can ‘top up’ their coverage in addition to their company’s existing group policy.
Loss of license insurance is specifically designed for pilots. As such, it negates many of the associated limitations of traditional group insurance products. For instance permanent health and critical illness insurance policies may provide limited cover and significantly reduced benefits in the instance of losing your license.
Who can we insure?
We can cover any individual commercial, fixed rotary or wing pilots including flight instructors, who hold a current license and who are gainfully employed, and actively at work.
Alternatively, if you’re interested in a group policy, please email us directly at chris.burke@spectrum-ifa.com
Key benefits
- Lump sum payment
- Monthly temporary benefit option
- Continuous coverage
- Full psychological illness cover option available
- Market leading cover for alcohol and drug related illnesses
- No extra charge for rotor-wing pilots
- Worldwide cover
I have worked extensively with aviation companies and individuals alike, please do not hesitate to contact me with any questions.
Click here for a quote on Pilots Loss of License Insurance
The Full Spectrum
By Spectrum IFA
This article is published on: 26th May 2014
Having recently started working for the Spectrum IFA Group I thought it time I start a weekly Newsletter covering issues important to all of us, one way or another. Especially for expats who have made Italy their home/spend much of their time here. The main thrust/focus of my Newsletter is to impart in an easy-to-understand, but not too lengthy outline, important matters and up-to-date information to expats residing in my area on matters such as investments, tax and general financial planning issues. And being part of the Spectrum Group means I also have access to professionals in various fields of expertise.
So, taking the above into account, I thought a very good and apt place to start would be to give a broad overview of current happenings in world markets, as we are all affected one way or another, especially with the speed at which events are communicated.
Probably 95% of people I have assisted or advised has had or still has capital in the markets in one way or another. There are many ways this could occur, viz a Pension Fund, a Money Market Fund, an Insurance Policy, Unit Trusts (Mutual Funds) or direct Share Investment.
Markets go up and down, and likewise interest rates. And then we have inflation to factor in. We may not be affected by these movements in the short-term, but are almost certainly going to be in the longer term (five years onwards).
Hence the extreme importance of reviewing your finances on a regular basis, at the very least once a year, in order to ensure your investment aims and objectives are still on course. We are all told to have a thorough medical check-up once a year so as to ensure all our parts are functioning correctly. And we are willing to pay for this because we can appreciate the need – after all, we want to be on planet earth for as long as possible.
Likewise the common sense of having a proper financial check-up at least once a year. And in most cases this involves no fee but at the end of it one wants to walk away knowing everything is alright but, if not, then to be able to change the doctor’s prescription! And this gives us peace of mind.
Unfortunately many are the cases where we come across people who consult an advisor, but then forget to review or the advisor disappears and they fail to take remedial action to consult another.
There is so much “doom and gloom” about these days, so it is wonderful to read of or hear about news filtering through regarding the economies of the UK and EU which are quite positive, and this augers well for investors who have experienced a bit of a bumpy ride over the last 18 months and which offers potential for new would-be-investors or those who have been waiting. Matthias Thiel, market strategist at Hamburg-based M.M. Warburg, which is bullish on southern European assets. “The recovery story is playing out as expected,” he said.
The European Commission had, inter alia, the following to say in its Economic Forecast for EU countries……
- United Kingdom: Recovery takes hold, fiscal imbalances still sizeable
- Italy: A slow recovery is underway
- France: Recovery remains slow amid sizeable budget deficits
- Germany: Accelerated growth in the offing
- Portugal: Gradual economic recovery
- Greece: First signs of recovery
- Spain: The recovery becomes firmer while the re-balancing of the economy continues
It is very important to remember that markets experience upturns/good times (good times) as well as downturns (negative periods).
And economic experts never all agree! So when times are prosperous, out of, say, 100 experts, a third will have a certain view or opinion, a third exactly the opposite, and the remaining third will be neutral. And all will have convincing arguments to prove their respective outlook. But true, experienced economists, when asked what they think about a certain economic outlook will be honest enough to simply say “I do not know!”
Economies throughout the globe are all intrinsically linked together, and what happens in one country can impact on another, even if they are miles apart. Like that old adage “If America sneezes we in UK or Italy catch cold.
So, in conclusion, there is much to be positive about but with it comes a caveat: Do not put all of your eggs in one basket but spread your resources across the various asset classes.
In my next Newsletter we will focus on the different asset classes and what it means to diversify.
Until next time, ciao!!